Dynamics of Bid-ask Spread Return and Volatility of the Chinese Stock Market

Abstract: Bid-ask spread is taken as an important measure of the financial market liquidity. In this article, we study the dynamics of the spread return and the spread volatility of four liquid stocks in the Chinese stock market, including the memory effect and the multifractal nature. By investigating the autocorrelation function and the Detrended Fluctuation Analysis (DFA), we find that the spread return is lack of long-range memory, while the spread volatility is long-range time correlated. Moreover, by applying the Multifractal Detrended Fluctuation Analysis (MF-DFA), the spread return is observed to possess a strong multifractality, which is similar to the dynamics of a variety of financial quantities. Differently from the spread return, the spread volatility exhibits a weak multifractal nature.